Chesapeake Energy is reportedly exploring the acquisition of Southwestern Energy, a US-based natural gas and natural gas liquids producer with a market valuation of $12bn.

The market value of Southwestern Energy includes its debt, reported Reuters, citing unidentified sources having information about the development.

According to the publication, the combination of the two firms will go past EQT in becoming the leading natural gas-focused exploration and production company in the US in terms of market value.

Southwestern Energy’s assets are concentrated across more than 938,000 net acres located in the Appalachia and Haynesville Basins.

For the year ended 31 December 2022, the company’s production was 1,733 billion cubic feet equivalent (Bcfe). Its proved reserves at year-end 2022 were 21.6 trillion cubic feet equivalent (Tcfe).

The discussions between Chesapeake Energy and Southwestern Energy are in their initial stages, and there is no guarantee that an agreement will be reached, as per the sources.

Besides, the sources noted that Chesapeake Energy might consider alternative acquisition opportunities and could ultimately opt for a different target.

Chesapeake Energy came out of bankruptcy in 2021 and since then has been offloading its oil-producing assets to focus on natural gas. Its market value is around $13bn with the inclusion of its debt, the news agency reported.

Last year, the company acquired Chief Oil & Gas for $2bn in cash and around 9.44 million common shares.

Kimmeridge Energy Management, which played a pivotal role in advocating for Chesapeake Energy’s transition away from oil drilling in the previous year, expressed support for the ongoing discussions regarding the potential deal with Southwestern Energy.

The activist investment company currently maintains a 2% ownership stake in Chesapeake Energy.

Kimmeridge Energy Management managing partner Mark Viviano, has been quoted by Reuters, as saying: “A potential merger between Chesapeake and Southwestern aligns with our views on industry consolidation, given the high degree of operational overlap, opportunity for material synergies and valuation re-rating opportunity.”